Q.1 AAA and BAA corporate bond rates for 2000 mirrored each other for the most part. Aside from the obvious difference in BAA holding a higher yield due to the default risk, there was no other difference in the market drivers between the two bond types. This was a result of a very favorable state of the economy in 2000. The NBER determined that business activities were at a peak during this year, evident in the below graph where you can see the rates peaked during the Spring of 2000. Since a peak marks the end of an economic expansion and beginning of a recession, many economists braced for the economic downturn. There is some controversy amongst economists about whether the United States was actually in a recession following the 2000 peak; regardless, any down turn was light and did not create an enormous stir in the country’s business activities. Everything about the status quo of the economy in 2000 led to the notion that the U.S. was at a peak. For example, per capita GDP was $33,900, real GDP growth rate was at 4.1%, inflation rate was at 2.2%. All these factors were up from the previous year.

According to Wikipedia, “from 2000 to 2001, the Federal Reserve in a move to quell the stock market, made successive interest rate increases, credited in part for ‘plunging the country into a recession’ beginning in 2001.” Using the stock market as an unofficial benchmark, a recession would have begun in March 2000 when the NASDAQ crashed following the collapse of the Dot-com bubble. However, economic conditions did not satisfy the common shorthand definition of recession, which is "a fall of a country's real gross domestic product in two or more successive quarters.” But, the last quarter of 2000 revealed several major corporations announcing far weaker sales and earnings, as well as layoffs and plant closings. Additionally, consumer spending fell in November